The Great Telco Debate is all about putting the industry trends into context. Mark Gregory of EY can’t join us this time around but he sent the following in reply to my questions about the telecoms industry, its dynamics, broader economics and future industry structures. It is great food for thought ahead of November 29th when we next assemble for the debate.

Mark Gregory, Chief Economist UK & Ireland EY

With telcos under pressure in a complex world…

As the first sector to be liberalised and privatised at scale across countries, telecoms has been in the vanguard of change for 4 decades but now needs to consider where it goes next.

With the freedom to develop, the telecoms industry has changed out of all recognition in its search for profitable growth. Telcos today tend to be a mix of businesses with very different economic characteristics ranging from utility like local network operations to fast-moving, constantly changing content provision. These complex business combinations have grown out of a desire to capture more of the value that the telco enables but they risk destroying value by making the company both hard to manage and difficult for investors to value accurately.

The slowing economic global outlook as identified by the IMF recently will create extra pressure on telco business models and at the same time increase the political risk that companies in the sector face. Confronted with slower economic growth and increasingly squeezed consumers, politicians will look at industries that account for significant shares of consumer spending and corporate costs for opportunities for short-term political gain. The recent introduction of a retail price cap in UK energy and the proposal to nationalise certain UK utilities are good examples of possible ad-hoc intervention.

There is also a growing disparity between the largely national operations of telcos and the multinational scale and scope of their suppliers. With the seemingly never ending process of innovation, telcos risk losing control over their technology roadmaps to companies with much greater resources and economies of scale.

…time for a new stakeholder led model…

The low growth economy without any real productivity improvement is not going to provide much if any support to telco growth ambitions. It is time to change the model and for telcos to consider how they can best contribute to economic growth and increased prosperity. In particular, how to drive improvements in labour markets as these are where so many of the issues underpinning today’s economic and political challenges originate from.

In many countries, concern over the “left behind” have become increasingly prominent in the political debate – the people in traditional industrial towns who find themselves on the margins of the modern economy. Typically these groups live outside of cities and larger towns and struggle to participate in the workforce. One option might be to take investment to these people with the telcos leading the way. Rather than starting the roll out of technologies in the major population centres, telcos could look to reach further out and bring people into the labour market providing the infrastructure for remote working. People would be given the chance to participate electronically in the labour market, reducing the level of transport infrastructure investment required and in so doing enhancing productivity and growth in the economy.

Telcos could also use their national presence and knowledge in the digital arena to support wider digital skills development at a local level. Again remote learning could be part of this approach with the aim being to increase significantly the level and number of digitally skilled people in the economy. This would serve to improve the skills pool available to telcos but also provide a platform for faster digital growth with the benefits accruing to all.

Greater local reach and capability would also open the door to cross-sector collaboration with other utility like providers such as power and water and with other major sectors such as health. As Bell Labs showed, cross-sectoral digital innovation could provide a major leg up for economic growth in local markets. Working closely across sectors at a local level would provide telcos with the opportunity to identify new applications and to participate in developing and deploying these.

…in a brave new world.

Telcos have been at the forefront of economic change in the last 4 decades, innovating with a range of business strategies. It is increasingly clear that the global telco dream is over and that the core business is of providing connectivity that enables economic activity. In this context, telcos should focus on how best they can help increase the rate of economic activity across the full geography of their markets building stakeholder centric telcos.

Thinking ahead to the shape of the telecoms industry as it emerges into digital reality, what sort of product portfolio business processes and supporting systems will be required? This is a chance to rethink the industry, recalibrate in the light of a shifting role for the world’s communications service providers and position for the long-term rather than for the quarterly shareholder demands.

Product portfolio:The history of telecoms is strewn with the corpses of failed offerings. ATM (Another Telecoms Mistake), MERLIN (Means Early Retirement Looks Even Nearer), let alone what X.25 or Frame Relay ever meant! Hiding behind technology is no longer acceptable. What is needed is a simplified portfolio of fixed and mobile broadband with easily understandable pricing (not tariffing) and an open approach to APIs. This will allow the entrepreneurialism of applications developers and associated services to be smoothly integrated.

Business processes: These evolved along individual service lines and in different lines of business (LOBs) with their own idiosyncratic support services. The industry is crying out for business processes that short-cut the traditional complexity of getting a service ordered, installed and delivered to the customer and supported through suitable customer service channels.

Systems:Much is made of building the ‘programmable platform’ needed by the future telecoms players. This blend of formerly separate IT and network-derived components is brought much closer by the blurring of lines between network and IT assets, cloud delivered functions and the web scale players disrupting the hitherto hardware-centric marketplace.

AI/Analytics:on top of all of this now comes the power of AI/analytics and the ability to predict network and IT activity and even throw light on the customer’s behaviour.

In my early days at Logica, we always had the acid test of ‘fitness for purpose’ – i.e. did the software do what it was supposed to do. The goal for the future telco is to have a programmable platform which can serve as the engine to drive all consumer, business and wholesale services whether they find themselves playing directly or indirectly in the wealth of emerging business models. This means building economies of scale across all the operating functions within the telco. From outside of the telecoms industry it appears there is a lot of slack built into the system!

Yes, simplification means driving a lot of cost out of the business. A simpler portfolio will be more easily presented to the marketing functions of the LOBs and will remove unnecessary complexity from the billing side. In fact, how about removing billing altogether, flat rate bundles and even ask a credit card company to deal with the billing (as suggested to me by Tier 1 telco CIO)?

Cloud partners provide the ideal hybrid approach to building the platform of the future. We simply cannot predict the traffic patterns that will result from individuals, households, businesses and the wealth of ‘Things’ connected to each.

My suggestion: let’s start thinking from the outside-in. What are our partners, customers and customers’ customers trying to achieve? And how can we, as the telecoms industry, make ourselves as easy as possible to work with? Thinking in current telco terms doesn’t help the rest of the world build trust in telco’s role in the digital world.

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What do you get when you mix an academic, an optimistic technologist, a sceptical regulator, and the Great Telco Debate? A pragmatic view of where 5G is and where it is going.

I thought it timely to revisit the 5G debate. The expert witness comments at the Great Telco Debate 2017 from Professor Rahim Tafazolli from the University of Surrey 5G Lab, Hossein Moiin from Nokia and Clive Carter from Ofcom gave us plenty to consider on the day. Mobile World Congress gave me an additional chance to test these thoughts against the glitz and glamour of Barcelona and subsequent posturing from suppliers and mobile operators alike are bringing the 5G investment question into stark highlight.

Key threads to emerge from the debate:

5G is an engine, a framework for future proofing the whole network

It will start with mobile broadband because the industry is comfortable with the business model of connectivity. The newer business models requiring interworking with the automotive, health, energy sectors will need some time for both sides to agree how to work together. It must be a win/win situation where savings of 60-80% sited around healthcare for example, would be shared between parties, benefiting all.

4G is a very good system. We can add more speed e.g. massive MIM) to 4G to improve its performance.

5G will support higher speed broadband connecting people and ‘Things’ of different capabilities, but most importantly it will support automation.

5G does not treat IoT in isolation, automotive in isolation or mobile in isolation, but all together in a new all-inclusive system. These can’t all have separate networks so the single network has to be programmable. The reason for virtualisation is not about customer service but about reducing the cost of supporting this ever-expanding demand on the network.

Mission criticality and resilience are what is needed to support verticals like health and automotive but also to support the swift roll out of services contrary to traditional telecoms timescales. More important than low latency is guaranteed latency. Knowing what you have to work with when building and managing applications is vital. Take out the variability. We need more and more capacity because more and more applications include video content. The structure of the wave form and the frame size in 4G just can’t cope with this explosion of connections from low to high bandwidth and from low to high latency requirements.

Analytics gives the underlying fabric of 5G the intelligence to build future systems to support all activities. This turns the dumb pipes into intelligent pipes that the customers need.

We need 1 million connections per square kilometre! Where is the money to support this? ARPU is flattening or shrinking in some countries. The new money for the telcos is in automation, powered by data analytics and ultra-reliable, low latency communications. It is also important to note that data analytics and AI is not so much about what has happened in the past, but what will happen in the future and how to adapt the network around this demand. Excel spreadsheet can do the retrospective but AI/Analytics can do the future. Leveraging MEC and Analytics to have the content cached at the nearest cell site would save everyone a lot of trouble and improve performance as well as satisfaction.

We will see islands of 5G emerging: some from the telcos, some from other parties like cities, governments, major manufacturers. It will result in a very localised, scalable network infrastructure linking closely into the activities of people and things across the network.

The 5G Innovation Centre (5GIC): The role of Service Providers, Network Equipment Providers (NEPs), cloud providers, academia and regulators is to create an ecosystem capable of supporting the new industry.

The more and more personalised service that services and analytics brings to the table just isn’t the model the industry has been built on in the past. We built large scale networks that did lots of things for lots of people. This stuff really matters to society, to the economy, and of course, to the individual.

Universal service for everyone is somewhat at odds with the notion of more personalised service and making more money out of certain individuals. Targeting individuals can make the telecoms players more profitable. Great, but can you make the networks available at a uniform price to all customers?

In economic terms, we are redistributing the pie, not creating new ones or bigger ones. From a regulator (referee’s perspective), the redistribution of the pie results in people complaining to the regulator about losing a slice or two. The industry is giving productivity back to the customer through lower prices and the Skype dividend rather than giving it to the telcos and providers of equipment and devices. There is inevitably going to be a bun fight between suppliers for a share of a fixed pie.

5G rollout will vary dramatically based on regional differences, control economies, political motivation and regulation

Mobile operators can only afford 5G with additional sources of financing, income or perhaps a removal of the spectrum auction.

As the debate motion posited: The market can’t afford 5G. Well, it has to. It requires a rethink in terms of a broader investment for society as a whole. Benefits will accrue to citizens and not necessarily to the telcos. So how do governments and regulators encourage the investment? Tying it all back to economics, perhaps it’s time for a reconsideration of the value being created. The business case is built on saving money and driving operational efficiency into an industry that has gorged itself on fat margins and is now waking up to digital reality.

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The question I most often get asked at MWC is not what’s hot and what’s not. It’s always, how the hell do you cope with Barcelona and the FIRA as a blind person? The answer is a combination of planning, people and technology.

Planning

The annual MWC Lewis spreadsheet is legendary. It’s a masterpiece in how to cluster meetings in the same or adjacent halls (and trying to avoid anything north of Hall 5)!

Taxis (the subway is a non starter for me). The GSMA put me in touch with a specialist disability taxi firm who sent the same driver each day and even negotiated with the police to drop me off in front of the FIRA South entrance (didn’t always work). NB: The white cane comes in useful in getting to the front of taxi queues – stick with me next year!

Technology

Mobile Apps: having all of my appointments in the iPhone and the diary announcing everything through Voiceover, meant that I was continually getting audible input whether I wanted it or not

Be My Eyes: an accessibility app with over a 100,000 volunteers around the world helping 400,000 visually impaired people. Simply point your smart phone camera at something, click and it polls for a volunteer who comes online via a Web RTC link to tell you what you’re looking at.

Tap Tap See: similar to the above, does what it says in the name. Tap when pointing the camera and the system tells you it sees.

Orcam: this new self-contained device provides character, people and product recognition from its mounting on the arm of a pair of normal glasses. Tap the side and it reads any text in front of it. It recognizes people so that it tells you their names when they stand in front of you. You can even store products like cereal packets, wine labels etc and it will tell you what they are!

Navigation around the FIRA

A member of the GSMA customer team kindly arranged met me each morning outside and got me to my first meeting

The venue benefits from a grid system and the upper walkway spine: as long as I knew where I was relatively, I could vaguely find my way back to the Press Centre where I made my base

Collision avoidance: My low centre of gravity helps. I was bumped into so many times by people looking down at their phones or up at stands but never looking where they were going – despite vigorously waving my white cane. I was even rammed by a catering trolley but the person behind couldn’t see me and, not surprisingly, had expected people to get out of their way!

And, finally, just asking the hoards of people around me. Most are shocked that a man with a white stick is there at all but, as in life in general, the vast majority are phenomenally helpful. Most companies I saw actually walked me to my next meeting – a great excuse for them to get off the stand!

Just like living in London, I don’t allow myself be overwhelmed by the thought of over 100,000 delegates, 8 Halls, an Upper Walk Way, a Press Centre and even the new South Village. Just like commuting, you occupy a small island of the MWC at any time. What exists elsewhere is irrelevant, and optimising the route between islands is the goal. Shame Uber can’t operate in the aisles of the FIRA, or perhaps they, in a ground-based vehicle or a drone up near the ceiling, might well do so in the future. Or maybe I’ll give in to family pressure for a guide dog.

In terms of next year, my shopping list is pretty simple: HD Maps and iBeacons. Despite the hype around autonomous vehicles, the GSMA and the mapping companies still haven’t come up with a walking navigation step-by-step tool to tell me exactly where I am. For the premier telecoms industry event of the year, surely an app can be built based on all of that lovely tech to guide me? And, as with most accessibility technology today, everyone able-bodied I talk to say they would also love that for themselves!

Finally, my special thanks to all analysts, companies and GSMA employees who made this one of the best MWCs for me. Special mention to John Delaney from IDC who walked me back to my hotel when my taxi couldn’t get past the police barricades around the Catalonian independence demonstrators!

Tim Pritchard, Kantar TNS at the Great Telco Debate

In the spirit of getting outside perspectives on the evolving telecoms market, Tim Pritchard from Kantar TNS, the WPP company which is the largest custom research business in the world, joined the Great Telco Debate on the role of telecoms in the digital economy. The brand perspective raised some very interesting and contradicting themes:

The customer is changing. Traditional segmentation is no longer valid. ‘Generation CX’ (young, old, educated, working class – a slice of everyone) is the new reality and brands either listen and respond to customer feedback or risk becoming irrelevant.

It is widely accepted that customer loyalty drives profitable revenue growth. As such, customer experience (CX) is non-negotiable. But how does it fit in with today’s telecoms ‘product’ given the world of apps and over-the-top content consumption?

Corporate mission statements and brand values tend not to include the customer – you’ll be amazed how few companies, even those spending tens of millions each year on CX, have an agreed customer strategy. Get it written down and socialised across the business so that everyone from the janitor to the CEO knows it, and uses it to frame their work, their thinking, and their daily behaviour.

WPP’s 2017 Global BrandZ shows that 8 of the world’s most valuable 50 brands are telcos. A further 15 are technology companies. You’ve had the power for a long time, but have you leveraged that power? I would say not.

Most Telcos have adopted NPS (Net Promoter System) yet their NPS scores are among the lowest of any industry. Virtual network providers often enter markets and quickly start to outperform the network owners, sometimes by as much as 20-30 NPS points. It shouldn’t be that easy – there is something clearly amiss among incumbent telcos to afford disruptor brands that opportunity to create true CX differentiation.

A focus on self-serve business models may help to save telcos money but, aside from the customer groups who actively prefer to self-serve, tend to harm rather than enhance brand building efforts.

The customer voice is vital, and capturing customer feedback on specific interactions (preferably in real-time) provides critical input for both tactical response and strategy development, as well as brand building

Deliver emotional and functional experiences that stimulate long-lasting feelings for the brand

Do things that reinforce brand choice and deliver services to customers in a personal, relevant, and needs-satisfying manner

In short, the role of brand is changing with the digital market. Telcos and tech companies benefit hugely from high brand valuations yet typically suffer from poor customer service, reflected in low NPS scores. Part of the challenge is identifying what role the telco plays in the lives of ‘Generation CX’. Identifying, enunciating and promoting a clear customer strategy is vital to re-positioning the telco for the coming generations.

One of my highlights from the last Great Telco Debate was my informal interview with Phil Jordan, former Group CIO from Telefonica, about his 20 years in the telecoms industry. We talked about the highs and lows of the role, the relative role of the CIO, telco transformation and the state of the market. Here are some of the key topics and themes:

Highs and lows of a telco CIO

Phil believes the industry should be proud of being at the heart of building the digital economy and helping people run their digital lives

Almost every day for Phil had 4 highs and 5 lows: One of the lows is that telecoms is a much-maligned industry and ‘we’ do a great job of kicking the proverbial out of each other when we gather for an industry forum such as the Great Telco Debate. ‘We’ continually complain about how difficult it is and how poor ‘we’ are at servicing customer needs.

A low, especially recently, is how frustrating it can be getting the industry to shift gear. We are running out of time to remain relevant and at the centre of driving the digital revolution

The vast majority of time has been spent fighting internally with colleagues over the digital transformation of the organisation rather than fighting with competitors, dealing with regulators or building relationships with suppliers

The relative role of the CIO

Telcos were traditionally run by network people and IT was very much an afterthought, resulting in overly complex systems. According to Phil, very little architectural integrity exists in telcos. IT was a system of record but is now moving to be the differentiating factor with the network becoming the underlying product. The network is, of course, the biggest asset but it is not a source of differentiation. Phil suggest that the real differentiator is the leveraging of customer data. This is a huge transition for telcos to move from an engineering mentality to actually serving the customer. All this places huge technical, skills and leadership demands on the organisation.

It is still difficult to operate at a pace within the telcos but they are gradually realising the new innovation paradigm. From the CIO perspective, running the network with a handful of suppliers, looks easy. The IT side, on the other hand, has literally thousands of suppliers. And, the CTO is the one person in the telco who understands the network. Everyone thinks they understand how IT works or should work!

The shift to ‘X as a service’, along with changing suppliers relationships, is indicative of the shift in balance between CTO and CIO.

There has been a degree of complacency with the telcos and their suppliers. There seems to have been a ‘hand break’ on virtualisation because it represents the end of an era for so many parties both in inside and outside of the telcos. “Virtualisation is turkeys voting for Christmas. Having said that, it isn’t a straight route. In sailing terms, it needs a bit of tacking and jibing across the direction of travel in order to get to the end destination – and we need to learn to read the wind!”

Telcos have been guilty of not understanding the innovation agenda and where it has been coming from.

Transforming the telco into a digital business

Transformation is difficult because it was easy running a telco when profits were high, competition low and everyone knew their place! The commercial and technical leadership used to “rock up and run the business”. All of a sudden there are new competitors, margins are shrinking and innovation is coming from other places. This requires a different kind of leadership.

It is noticeable how many telco executives come from management consultancy, finance or law whilst the hyper scale companies are led by tech entrepreneurs

According to Phil, the role of the CIO is very much one of being a story-teller and explaining how things work to the different LOBs, OPCOS and levels of management. The CIO, in many ways, has a better end-to-end understanding of the way the business runs. This is because the CIO can’t get away from everyone asking him how everything worked. So, in short, a major problem exists at the top of telcos not understanding the way the business runs and not really understanding the art of the possible when it comes to technology

Phil believes that transforming a major telco is 3-4-year job and “anyone who tells you it is less is lying or have never done it before”.

The state of the market

On the consumer side, the risk of being marginalised is real. The motion for the debate was that we will buy our broadband from Google and Amazon in the future. We probably won’t even buy broadband directly, but included in services from a variety of companies, including the OTTs.

On the business side, there are enormous possibilities as business models emerge that require connectivity. One of the problems is that telcos think they should be running Facebook. The problem is that the money is in B2B, IoT and AI.

We need to build offerings into the emerging digital business models. Wholesale was the poor relation because its margins were considerably lower that the highly profitable retail and business service. As those margins ‘head south’, wholesale may well look more attractive!

Telcos run the risk being relegated to mere utility bandwidth. Does this mean we will be part of a much smaller industry in the future? Phil believes there will be a consolidation around the connectivity market with the leveraging of data providing the new impetus, innovation, and support for the customer experience. If the telco can give control back to the customer regarding their data, there is potentially a different relationship. Having said that, there is still a major role for the telcos to play in the digital world, society, and lifestyle whatever the ecosystem and relative roles.

Phil is now launching his retail career at Sainsbury’s. He suspects that the wafer thin margins of the high street will have the focus most definitely on the usage of data and building a clearer understanding of the customer and their behaviour. Perhaps he will bring these lessons back into telco in the future!

Getting external perspectives always adds to the richness of the Great Telco Debate. Mark Gregory, Chief Economist at EY in London and I discussed the economic realities of telecoms and the digital economy going forward. Here are the key themes that emerged:

Measuring productivity in traditional economic terms has been challenged by the Gig economy and its processes: ubiquitous connectivity is destroying traditional value such as in the taxi, hotel or retail markets but is creating new value as different parties are brought together on the exploding number of platforms for consumer and business use

‘Digital’ was formerly about hidden components such as semi-conductors, servers and 3D printing. It’s now all pervasive and, from an economist’s perspective, it’s about how all industries work, the potential impact of technology and where value is created

The potential ubiquity of ultra broadband diminishes the relative value of connectivity since scarcity tends to create value

Telecoms is in the group of General Purpose Technologies (GPT) as described by Robert Gordon in his assessment of the impact of IT on productivity. It may be a disproportionately important enabler in a more digital world, but it is nonetheless an enabler

Telecoms (broadband) should have a relatively bigger role going forward but that depends on how it evolves and how it allows other industries to evolve

Telecoms first of all has to deliver its role into the digital economy as an enabler. Moves into content delivery and other services have been only variously successful

Telecoms must think about how it can enable other value chains rather than dominate them by underpinning new processes and allowing new apps to flourish.

Politics is becoming extremely important for the future of telecoms. Regulators have to get out of the mindset of capping prices if they are going to allow the telecoms industry to evolve into its new digital economy support role. The telcos have to be able to benefit in terms of value capture if they are going to be incentivised to invest for the future.

5G is what some of the financial community are most worried about in terms of another big chunk of investment being required.

Digital skills are important as automation shifts the focus for human roles in the digital economy

As we look at Brexit some sectors are clearly going to be impacted:

Financial services and Life Sciences because of the regulatory environment.

Automotive could be impacted but this is still not clear

Telecoms does not appear to be in the high impact category.

Data protection will be a major focus given European regulation.

The labour force is the one to keep an eye on – digital skills and a more flexible work force capable of coping with the the dynamics of a digital market will be vital.

Here is the full interview:

Keep November 29th 2018 free for the next Great Telco Debate. If you have topics you think are shaping the future of the industry and would like to contribute as an ‘expert witness’ please drop me a line.